Bank of America says the S&P 500 is likely to sink even lower before finding a bottom.
The bank's chief investment strategist said in a note Friday that investors will spend a lot of time working through inflation, rates and recession that will result in negative and volatile returns.
Michael Hartnett, chief investment strategist at Bank of America Global Research, said that past performance is not a guide to future performance.
The S&P 500 would need to fall about 28% to hit 3,000 and another 18% to reach 10,000, each from Thursday's close.
The Federal Reserve Chairman said the central bank wasn't considering a large interest rate increase as the stock market soared. The gains were wiped out a day later, with the S&P 500 losing 3.6% and the Nasdaq sliding 5%.
The S&P 500 is down more than 10% from its all-time high of 4,818.62 on January 4. The market is in a bear market.
The base case remains equity lows and yield highs yet to be reached.
Bond yields have risen to multi-year highs, with bond prices falling as investors prepare for the Federal Reserve to continue an aggressive run of interest rate hikes. The central bank is behind the curve in dealing with inflation, which accelerated to 8.5% in March, the fastest increase since 1981 Next week, the April inflation report is due.
The 10-year Treasury note yield and the 30-year yield have risen past 3%, the highest since November and December of last year, according to TradeWeb. The Information Technology sector of the S&P 500 lost 4% this week as higher yields can cut into the value of future earnings. The Fed's hawkishness is likely to push up bonds yields further.
Over the past nine months investors have slowly priced in inflation and rate shocks but have priced in the recession too quickly.
According to Hartnett,alysis rather than panic is the best way to describe investor positioning this year.
The average entry point for the S&P 500 has been 4,272, leaving investors under water but only somewhat.
The bounce from the bear market.
According to Bank of America, there have been nine bear markets in the past 140 years and the average price decline is 37.3%.
When investors could see the end of major bleeding from US equities, it worked out.
The good news is that many stocks are already there, with more than 50% below their highs, and almost all of them are down more than 30%. The index is down more than 20% in the bear market.
BofA said that bear markets are quicker than bull markets.
All Rights Reserved © 2024
